What sets wealthy investors apart from everyday 'rich' investors…
Are the ways in which they build and preserve their wealth.
There are tactics they use to ensure they can enjoy their wealth today…
While being able to pass it on to their future generations tomorrow.
Since moving to Dubai, I've met some incredibly high-performing people.
Not long ago, I received an invite to a birthday dinner in DIFC.
It was in honour of a successful business owner - and it was one of those nights where I knew I was neither the smartest, nor the wealthiest, in the room.
But, of course, wealth was a major topic of discussion.
Not 'how can I be richer?'
More, 'how can I grow and preserve my wealth for generations to come?'.
This group of people shared their tactics and processes.
I shared my thoughts and experiences from working with the affluent every day.
Here are six key takeaways.
This may seem an obvious question with an obvious answer.
In some ways it is.
AES define investing as ‘the process of building and preserving purchasing power in order to fund the lifestyle and personal choices you want’.
It’s a slow, sometimes frustrating, and emotionally painful process that requires a well-thought-out plan, executed over many years with discipline and patience.
Anyone hoping to get rich quick is a gambler and is playing the wrong game.
Likewise, anyone unwilling to take on at least some risk, is a saver.
Most Britons have 35% of their wealth in property, with high-net-worth individuals having only 17%.
While property can be a great tool for generating wealth, it’s illiquid and large transaction costs apply.
For UK domiciles, property is hard to shield from Inheritance Tax, rent can be subject to 45% income tax, and capital gains tax rates are higher on property than other types of investments.
These high taxation rates are not ideal when you’re looking to grow and cascade your wealth.
Wealthy investors understand the need to diversify away from property and into vehicles which offer long-term rewards.
And the UK government seems to agree.
While it hasn't explicitly stated a desire to disincentivise property ownership as a means of building personal wealth, there are several policy areas and shifts that suggest the government is keen to address some of the negative consequences of an over-reliance on property as a wealth-building tool.
That being said, if you’re purchasing property for yourself and your family to live in – the emotional benefits are invaluable.
The problems come in when property is solely used as a means of wealth creation.
You’ve likely got a mortgage or had one before.
Leveraging a mortgage compounds wealth gains.
In fact, Elon Musk was reported to take out mortgages on five properties in 2019 to the value of $62 million.
The loans show how even the wealthiest people use mortgages to maintain liquidity.
Musk, with a $23.4-billion fortune, according to the Bloomberg Billionaires Index, is among ultra-wealthy property owners — including Facebook Inc.’s Mark Zuckerberg, hedge fund billionaire Ken Griffin and music superstars Beyoncé and Jay-Z — who have taken out monster mortgages.
Why tie up your capital in an illiquid investment when that capital could be kept freely available to take advantage of higher returning opportunities in the markets?
You could fund anything from your children’s top-tier university education in the UK to ‘buying the dip’ when the stock market crashes significantly.
This is similar to mortgages but secured on your investment portfolio rather than a property.
I covered this topic on my YouTube channel.
Lombard lending allows you to buy further assets or fund your expenses, without needing to sell investments and avoid triggering tax liabilities.
According to LA times, Elon had pledged 40% of his stake in Tesla to benefit from ongoing lending to cover his personal expenditure and private projects.
The 2021 leak by ProPublic reveals the ultra rich pay very little in income tax.
Denise Coates, founder of Bet365, on the other hand, is an outlier. She willingly agreed to being taxed at the highest UK tax rate, paying more than half a billion pounds in tax. Yet, she was chastised for earning too much.
The stats on the ultra rich’s low income tax are not surprising as substantial wealth is rarely gained through high incomes but instead through significant growth in assets over time.
To compound this, most advanced economies tax capital gains at a lower level than income and so the system makes it easier to generate wealth via investments rather than through salaries.
What is useful to see is the affluent actually have large uncrystallised gains, suggesting they are borrowing against their high-growing assets.
This is a classic way to pass wealth down through the generations.
While the scope to use them can be quite limited (there may be certain restrictions with regards to how much you can put into a trust without attracting tax), there are particular trusts which can useful in specific circumstances.
It's best to take personalised advice around this area.
This is a relatively new method of passing wealth down in a controlled manner and can be very tax efficient.
The company structure does not need to be UK based but if it is, it could possibly be complemented by Lombard lending.
This would allow the interest on borrowing to be offset against the company’s tax bill.
As a growing area in financial life management, we’re seeing more individuals with £10 million+ looking into the unique benefits of family offices.
And that’s it.
Six things your wealthy friends are doing that keep them on a path towards a flourishing future.
Financial life management can feel increasingly complex as your wealth grows.
Find a trusted guide who can take this off you.
Or, in the very least, simplify it for you.